Returns At PowerSchool Holdings (NYSE:PWSC) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at PowerSchool Holdings (NYSE:PWSC) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for PowerSchool Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.0036 = US$11m ÷ (US$3.5b - US$349m) (Based on the trailing twelve months to March 2023).

So, PowerSchool Holdings has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.9%.

See our latest analysis for PowerSchool Holdings

Above you can see how the current ROCE for PowerSchool Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering PowerSchool Holdings here for free.

SWOT Analysis for PowerSchool Holdings

The Trend Of ROCE

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last three years, the ROCE has climbed 87% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

In summary, we're delighted to see that PowerSchool Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 63% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if PowerSchool Holdings can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with PowerSchool Holdings and understanding this should be part of your investment process.

While PowerSchool Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.